On January 1, 2022, Dire Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dire to make annual payments of P150,000 at the end of each year for ten years with title to pass to Dire at the end of this period. The machinery has an estimated useful life of 15 years. Dire uses the straight-line method of depreciation for all of its fixed assets. Dire accordingly accounted for this lease transaction as a finance lease. The interest rate of 8% is implicit in the lease. Dire has an option to purchase the asset at the end of lease term at P120,000 which is reasonably certain to exercise by Dire. Estimated residual value at the end of 10 years is P100,000 and end of 15 years is P80,000. Dire incurred a total of P350,000 direct cost to enter the lease. Dire should record for 2022: ANSWER: interest expense of P84,968 and depreciation expense of P88,806. Show full solution
On January 1, 2022, Dire Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dire to make annual payments of P150,000 at the end of each year for ten years with title to pass to Dire at the end of this period. The machinery has an estimated useful life of 15 years. Dire uses the straight-line method of
ANSWER: interest expense of P84,968 and depreciation expense of P88,806.
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